Trade, Migration, and Environment : A General Equilibrium Analysis

We analyze in a simple general equilibrium model of North-South trade the migration of labour and environmental issues. We build on the North-South Trade model originally developed by Chichilnisky (1981, 1994). We assume that property rights for the environmental input are not well defined in the underdeveloped country in contrast to the industrialized country. When migration occurs this leads to a tendency towards wage equalization. The terms of trade in the South increase, less of the resource is extracted and the welfare of the South increases. We consider various tax and trade policies. Trade policy can reduce the extraction of the resource but a unit tax on the use of the resource can lead to an increase in the actual quantity of the resource extracted